Author Topic: How many different savings accounts?  (Read 2523 times)

Matt (Semper Fi)

  • 5 O'Clock Shadow
  • *
  • Posts: 26
  • Location: Southern Utah
How many different savings accounts?
« on: August 27, 2016, 10:14:21 AM »
Hello friends,

I tried wading through the present posts to see if this topic has already been addressed, and I'll bet it has, but after a couple of hours of due diligence, I thought I'd better just ask.

I'm 44 years old, and I would really like to leave the rat race within the next 7 years.  We are capable of saving about 50k - 55k per year, plus my wife desires to keep working beyond my projected walk-away date (good for health insurance and extra stashing).  Right now, between my wife and I, we have 105k invested in our two 401k accounts and two Roths (yeah, we got a late start).  The 105k is another subject I will be asking about later, but for now, my question is: after we max out the contributions for those four accounts, where should I put my remaining money? 

From what I understand, it seems that Mustachians also invest in taxable accounts (like a Vanguard Index fund) separate from their 401Ks and IRAs, and that is the money they live on until they start tapping the 401Ks and Roths at 59 1/2.  I would like to have 625k saved up before I walk away, but where does that money go?  Is it split between the retirement and taxable accounts?  Or, is the 625k for just the retirement accounts, and I need to save up a SEPARATE buttload of money in the taxable accounts?  I hope that's not the case; otherwise, my walk-away date will be much further away,which would make incredibly sad.  Thanks for any advice!

Captain Cactus

  • Stubble
  • **
  • Posts: 163
Re: How many different savings accounts?
« Reply #1 on: August 27, 2016, 10:46:13 AM »
Following, I'd love to hear what the community says on this topic. 

shuffler

  • Bristles
  • ***
  • Posts: 341
Re: How many different savings accounts?
« Reply #2 on: August 27, 2016, 10:47:37 AM »
It seems that Mustachians also invest in taxable accounts (like a Vanguard Index fund) separate from their 401Ks and IRAs ...
Yes.

... and that is the money they live on until they start tapping the 401Ks and Roths at 59 1/2.
No, no need to wait until 59.5.
See this post (and many other links) about how to access 401k/IRA before 59.5.

I would like to have 625k saved up before I walk away, but where does that money go?  Is it split between the retirement and taxable accounts?
Typically you max out your retirement accounts each year (and buy index funds within those accounts), and then the rest goes to taxable-accounts.
So it's just a matter of how much you can fit in to the tax-advantaged accounts, given the max contribution limits.

Or, is the 625k for just the retirement accounts, and I need to save up a SEPARATE buttload of money in the taxable accounts?
You'll will need a standard buttload.  A metric buttload is much larger, and you'd waste too many years trying to save that much.

... but seriously ... how much do you need?
Figure out how much you need first.  Then put as much into tax-advantaged-accounts as you can.  And then save the rest in taxable-accounts.

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 2210
Re: How many different savings accounts?
« Reply #3 on: August 27, 2016, 12:08:37 PM »
If you need $2500/month from your savings, that would be $30,000 a year or almost 5% of the retirement amount you listed.  Are you sure that's sustainable for early retirement?  It seems aggressive.  How did you decide 7 years and $625k for retirement?

Your plan is semi-retirement, with your wife working.  But as of today, I assume she hasn't experienced working full time while you don't work at all.  You might be ignoring the potential resentment that can arise with only one spouse retired.  I would suggest laying out two plans: one like you said, and one where both of you work until both of you can retire.

Matt (Semper Fi)

  • 5 O'Clock Shadow
  • *
  • Posts: 26
  • Location: Southern Utah
Re: How many different savings accounts?
« Reply #4 on: August 27, 2016, 08:20:35 PM »
Thanks for the replies.  My wife gets some pretty hefty bonuses on a regular basis, but the amount does fluctuate, so I didn't include it in our base take-home pay.  She will probably bring in an additional 150k or so over the next 7 years.  If we really batten down the hatches, we can save more than our current savings rate, so I think that reaching 625k over the next 7 years isn't too much of a stretch.

As far as my wife still working, and me retiring . . . hopefully she will see what a great time I am having, and just join me, hahaha.  Thanks for the insight and suggestions, guys - it is much appreciated.

Rubic

  • Handlebar Stache
  • *****
  • Posts: 1084
Re: How many different savings accounts?
« Reply #5 on: August 28, 2016, 01:23:42 PM »
You may want to check out the following book from nords, a frequent
contributor on these forums:

https://www.amazon.com/dp/B005AU15EU/

All profits are donated to military related charities.

Nords

  • Magnum Stache
  • ******
  • Posts: 3250
  • Age: 59
  • Location: Oahu
    • Military Retirement & Financial Independence blog
Re: How many different savings accounts?
« Reply #6 on: September 03, 2016, 05:15:30 PM »
Thanks for the replies.  My wife gets some pretty hefty bonuses on a regular basis, but the amount does fluctuate, so I didn't include it in our base take-home pay.  She will probably bring in an additional 150k or so over the next 7 years.  If we really batten down the hatches, we can save more than our current savings rate, so I think that reaching 625k over the next 7 years isn't too much of a stretch.
Matt, while you still have earned income you should try to maximize your contributions to the Roth TSP and your spouse's Roth 401(k) as well as your Roth IRAs.  There are several penalty-free and tax-free ways to tap those accounts before 59.5:
http://the-military-guide.com/early-withdrawals-from-your-tsp-and-ira-after-the-military/
Many of those methods are routinely discussed on these forums.

And you're right, after you maximize those contributions then you save/invest even more in taxable accounts.  I'd recommend passively managed index funds with low expense ratios from Vanguard or Fidelity, and a fairly aggressive asset allocation that's higher in equities. 

You may want to check out the following book from nords, a frequent
contributor on these forums:

https://www.amazon.com/dp/B005AU15EU/

All profits are donated to military related charities.
Thanks, Rubic!

I'd check the local base or public libraries first-- it's in over a hundred of them around the world.  If you prefer your own copy then the Kindle version is much easier to search and highlight.

To be excruciatingly technically correct, my royalties (and any other writing revenue) are what's donated to military-friendly charities.  The publisher probably puts his profits back into the business.

Mollie

  • 5 O'Clock Shadow
  • *
  • Posts: 6
Re: How many different savings accounts?
« Reply #7 on: September 09, 2016, 06:17:48 AM »
I have similar questions about which investment accounts to have.  My goal is ER in about 20 years (I'd be 50-55 years old).  Currently we have well under 100K in retirement money.  97% of it is in IRA/403b and 3% is in Roth.  I've been debating starting to max out the Roth--which we're not currently doing VS. starting a taxable account since I'm going to want money before 59 1/2.  From what I'm reading, it sounds like maximizing Roth/IRA options is preferred due to tax advantages and then we can use the Roth contributions before 59 1/2 or do an IRA conversion ladder (assuming this is still possible 15 years from now).  I shouldn't worry about a taxable account unless I have extra money after I max all retirement accounts? 

Am I understanding correctly?

If it matters, we are in the 15% tax bracket and not bumping up on 25% any time soon, so for now, increasing my 403b contributions wouldn't make a difference for tax brackets.